Banking
Gap risk KVA and repo pricing
Wujiang Lou introduces a reserve capital approach to the hedging error in the BSM model
Organising the allocation
Yadong Li, Marco Naldi, Jeffrey Nisen and Yixi Shi propose a new capital allocation method
Interest rate models enhanced with local volatility
Lingling Cao and Pierre Henry-Labordère implement Dupire's local volatility in interest rate models
Operational risk modelled analytically II: classification invariance
In a simple model, Vivien Brunel establishes the properties of an operational risk model under the requirement of classification invariance
Risk optimisation: the noise is the signal
Benedict Burnett, Simon O’Callaghan and Tom Hulme introduce a new method of optimising the accuracy and time taken to calculate risk for an XVA trading book. They show how to make a dynamic choice of the number of paths and time discretisation focusing…
MVA transfer pricing
Wujiang Lou extends liability-side pricing theory to initial margin
Deconstructing correlation
Peter Austing introduces an analytic or semi-analytic valuation of basket options
Loan classification under IFRS 9
Vivien Brunel proposes a method to classify non-defaulted loans in accordance with IFRS 9
Capital and funding
Quants propose KVA and FVA accounting framework based on Solvency II regulation
Liability-side pricing of swaps
Wujiang Lou presents a framework to compute recursive CVA and FVA via Monte Carlo simulation
Cross-dependent volatility
Julien Guyon introduces cross-dependent volatility models and calibrate them to market smiles
Accounting for KVA under IFRS 13
An accounting treatment for the economic effect of KVA in accordance with IFRS13
From FVA to KVA: including cost of capital in derivatives pricing
Youssef Elouerkhaoui presents a general derivatives pricing framework including cost of capital
The funding invariance principle
Youssef Elouerkhaoui shows how the choice of discounting rate is irrelevant for pricing
Non-parametric local volatility formula for interest rate swaptions
Gatarek, Jabłecki and Qu introduce a Dupire-like formula for swaptions
Expected shortfall is jointly elicitable with value-at-risk: implications for backtesting
Fissler, Ziegel and Gneiting investigate the role of elicitability in backtesting problems and show how comparative backtests can be implemented for expected shortfall
Diversification benefit of operational risk
Torresetti and Le Pera explore the relevance of the diversification benefit from a theoretical and practical viewpoint
Correlation skew via stochastic correlation and jumps
Valer Zetocha introduces a correlation model based on the Jacobi process with jumps
CVA with Greeks and AAD
Reghai, Kettani and Messaoud present new technique to calculate CVA using adjoints
Jumping with default: wrong-way risk modelling for CVA
Fabio Mercurio and Minqiang Li investigate CVAs in the presence of wrong-way risk
FVA for general instruments
Alexander Antonov, Bianchetti and Mihai develop a universal and efficient approach to numerical FVA calculation
A non-linear PDE for XVA by forward Monte Carlo
Vladimir Piterbarg considers a non-linear partial differentiation equation that appears in a number of XVA-related contexts, including a one-way credit-support annex, credit value adjustment with risky closeout, option pricing with differential borrowing…
Collateral option valuation made easy
Vladimir Sankovich and Qinghua Zhu develop a method to value cheapest-to-deliver option embedded in CSAs
Wrong-way risk done right
Jacky Lee and Luca Capriotti present an arbitrage-free valuation method for counterparty exposure of credit derivates portfolios.